Abstract
We examine whether the choice of cash flow disclosure under International Accounting Standard 7 has an influence on the cost of capital incurred by Australian listed companies. Results indicate that indirect method companies incur a significantly higher ex‐ante cost of equity than direct method companies using a combined equity model approach. We also demonstrate that using an optimal weighted combination of equity models reduces model variance and bias compared to using a single equity model. Our findings support mandating the direct method and have the potential to induce companies to report the direct method to increase company value.
Original language | English |
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Pages (from-to) | 877-908 |
Number of pages | 32 |
Journal | Accounting & Finance |
Volume | 60 |
Issue number | S1 |
Early online date | 26 Nov 2018 |
DOIs | |
Publication status | Published - 1 Apr 2020 |
Externally published | Yes |
Keywords
- equity
- debt
- cash flow disclosure
- direct method
- indirect method